Quitting residency, still qualify for REPAYE?

[GlovesOff]

So for reasons that aren't related to this post, both my wife and I are considering moving in a direction other than medicine. I am a PGY-1 and will be finishing intern year in July. I am considering not extending my contract for reasons mentioned below. My wife is about to finish up NP school. Together, we have about $500k in student loans. All of mine are federal, but my wife has one private loan ($55k) in addition to federal.

My question is, is it possible to consolidate both of our student debt into Direct Loans and then apply for REPAYE so that for the foreseeable future our payments wouldn't be more than 10% of our salaries?

I know financially speaking, the combined salary of a doc and NP makes is sound like continuing in medicine would be the smartest thing to do, but neither one of us are enjoying medicine or find it satisfying. I don't regret the med school route, but haven't enjoyed any of it since 3rd year. Now an opportunity has presented itself for us to ease our way into assuming ownership of a successful company in the family, in a business both of us have pipe-dreamed about in the past, and I think it's time to make the move before wasting more time in something I don't want to do.

Any thoughts on the loan situation?

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[RangerBob]

If you're a PGY-1, then typically all your loans would be direct loans anyway, so you should first verify that. If they aren't (I was under the impression all loans since 2010 are direct loans), then consolidating them does bring them into the direct loan program and make them eligible for REAPAYE and for PSLF.

Keep in mind that if you only pay the minimum, your interest could very well outpace what you pay, so that your loan balance actually gets bigger. After 25 years, as currently written, that would be forgiven. BUT, and it's a big but, that could change (no one's tried getting their loans forgiven that way, and most are still quite a ways away), and as of right now, any of that loan forgiveness is taxable. So you would want to start setting aside money with each monthly payment to pay for that ~35% or whatever tax bomb. There are financial finagles you can do (if you hardly have any assets I don't think you pay the full amount in taxes, but then, who wants nothing in assets when their in the mid-late 50's?)

I would be very careful with any decision you make. You should do what makes you happy. But both of you giving up on guaranteed high paying jobs (and guaranteed permanent jobs--the few times physicians lose their job it's typically due to gross incompetence, or the hospital shut down, and it's quite easy to find another gig--sadly even for the incompetent physician.) Those things, as well as making a real difference in people's lives are great reasons to be a physician, but if you don't enjoy it, then what's the point?

But that's the other question you need to really delve into before moving out of medicine (as it would be nearly impossible to come back to any residency program)--will you really be happy in this other job? To be honest, happiness is far more about how you learn to be happy than about what you're actually doing (ie, it's more intrinsic than extrinsic). Medical students/residents/physicians can be notorious for the grass-is-greener syndrome, and especially millenials (like me) who grew up in the era of "follow your passion." Well, that's true, do something you're passionate about, but many of us learned to interpret that as we have find the perfect job to be happy, which can make it really hard to be happy when every single job will have mundane aspects and eventually become more routine. Ideally, you want to both have fun at work, and find meaning in it, because meaning/purpose is what gets you through those slow/crappy times. That's why you still see plenty of happy janitors--they're providing a living for themselves and their family, and they're probably just genuinely happy people. The same is true with any profession, but most people think cleaning toilets would be miserable so I just point that out (I worked as a janitor for a while--I actually really enjoyed it).

The job you get will help. But happy people is what makes a happy job. Only you can really answer what will make you happy. Life is rather short, so I'm a proponent of doing something else if what you're doing now won't make you happy and you know you can't learn to be happy doing it. We're talking about the rest of your life.

 

[sazerac]

If you're a PGY-1, then typically all your loans would be direct loans anyway, so you should first verify that. If they aren't (I was under the impression all loans since 2010 are direct loans), then consolidating them does bring them into the direct loan program and make them eligible for REAPAYE and for PSLF.

Keep in mind that if you only pay the minimum, your interest could very well outpace what you pay, so that your loan balance actually gets bigger. After 25 years, as currently written, that would be forgiven. BUT, and it's a big but, that could change (no one's tried getting their loans forgiven that way, and most are still quite a ways away), and as of right now, any of that loan forgiveness is taxable. So you would want to start setting aside money with each monthly payment to pay for that ~35% or whatever tax bomb. There are financial finagles you can do (if you hardly have any assets I don't think you pay the full amount in taxes, but then, who wants nothing in assets when their in the mid-late 50's?)

I would be very careful with any decision you make. You should do what makes you happy. But both of you giving up on guaranteed high paying jobs (and guaranteed permanent jobs--the few times physicians lose their job it's typically due to gross incompetence, or the hospital shut down, and it's quite easy to find another gig--sadly even for the incompetent physician.) Those things, as well as making a real difference in people's lives are great reasons to be a physician, but if you don't enjoy it, then what's the point?

But that's the other question you need to really delve into before moving out of medicine (as it would be nearly impossible to come back to any residency program)--will you really be happy in this other job? To be honest, happiness is far more about how you learn to be happy than about what you're actually doing (ie, it's more intrinsic than extrinsic). Medical students/residents/physicians can be notorious for the grass-is-greener syndrome, and especially millenials (like me) who grew up in the era of "follow your passion." Well, that's true, do something you're passionate about, but many of us learned to interpret that as we have find the perfect job to be happy, which can make it really hard to be happy when every single job will have mundane aspects and eventually become more routine. Ideally, you want to both have fun at work, and find meaning in it, because meaning/purpose is what gets you through those slow/crappy times. That's why you still see plenty of happy janitors--they're providing a living for themselves and their family, and they're probably just genuinely happy people. The same is true with any profession, but most people think cleaning toilets would be miserable so I just point that out (I worked as a janitor for a while--I actually really enjoyed it).

The job you get will help. But happy people is what makes a happy job. Only you can really answer what will make you happy. Life is rather short, so I'm a proponent of doing something else if what you're doing now won't make you happy and you know you can't learn to be happy doing it. We're talking about the rest of your life.

Excellent post, with just a minor addition. While technically nobody has gotten their loans forgiven through the path of 25 (or 20) years of payments yet, the loans are also forgiven upon death or disability via the exact same mechanism. Many people with federal student loans have since gone on disability, and their loans have all been forgiven in full. The forgiveness amount is indeed taxable income, so those newly disabled are being hit with a gigantic tax bill, in addition to being unemployed.

The loan forgiveness tax bomb isn't an untested theory. It's real, and it's here now.

 

[GlovesOff]

Thank you for such an informative post, and also for bringing up the tax bomb. I knew about that at one point but had forgotten it and certainly need to take that into account for any decision that will be made. All of this at this point is only the information-gathering stage. No decisions have been made, and nothing will be happening any time in the near future. Only trying to get info for now. Thank you again. And if anything else comes to mind, I would love further thoughts on the loan situation.

 

[Student Loan Planner]

Sunk costs are sunk costs, so if you're sure you're not happy then I think that's a reasonable path to go down. I'm confused why the consolidation is necessary unless all your loans are from 2010 and before, in which case they're on the FFEL program and wouldn't be eligible for REPAYE, so that would make sense in that case. If you're a PGY-1 I'd imagine a lot of your loans are already on the Direct program